The New “Merchant Bankers”: Art & Antiques Backed Assets

I am back from my first 2 week vacation since I left Coopers & Lybrand in 1974; is there a life out there?? However upon my return I now have confirmation that “collateralized loans” based on art and antiques back assets are now being conceived by the Sotheby’s new avowed profession as “merchant bankers”

It’s actually called Sotheby’s Financial Services, which will attempt to further rely on the non-negotiable buyer’s premium as a source of guaranteed income, while further manipulating its conflict of interest with the use of consigned merchandise. Under the concept of “high value partnerships” they have made Sotheby’s Ventures “act as a merchant bank to create opportunities to acquire high-value property for resale in partnership with important dealers”.

The concept is quite nice and should easily sway a lot of dealers to play the roulette game with their high value art and antiques, as Sotheby’s really can’t loose because they are dealing with consigned property, so their risk is collateralized. The whole process relies on their traditional conflicts of interest, fixed buyer’s premium prices, and deception against the buyer. But the real problem is how they can consider this merchant banking. Merchant banking in today’s world in highly regulated and isn’t based on an auction model. Did I just use that word regulation?

I can’t quite see the New York City Department of Consumer Affairs taking the lead in controlling this type of venture even though Sotheby’s is a very public company. As a merchant banker, does the SEC want to take a stab? They might have some experience dealing with conflicts of interest, collusion, fraud, and deceptive business practices (ever heard of the secret reserve).

Well, this is another battle for another day and we will all have to let Christie’s match these new rules of the game; that is how the duopoly works in this industry. I encourage all of you to read Sotheby’s press release on this matter at: http://www.shareholder.com/bid/releasesE.cfm

In the mean time, my next blog will look at the opportunities their proposed new business plan with offer dealers.